The Wall Street Journal of 10/6/2021 featured Paul H. Rubin’s article, “The Woke Left’s Primitive Economics”. Rubin makes several valid points in a) criticizing The Woke’s and the Marxist’s simple-minded, psycho-political, self-damaging, hate-and-envy macroeconomics, and b) recognizing that new and better human and material capital benefit the entire society. We wish Rubin had explicitly and clearly a) legitimized by nuanced theory the practical balance of taxation and spending for responsible waste-free activities, which only we, in our governmental form as We-The-People, can perform, and b) stated specifically that the level of taxation and the incidence of stratified taxation depend upon the requirements of the current phase of an economic expansion – Is it an initial non-expanding static economy, a proportionate expansion, a surplus expansion, a basic expansion, or a higher non-expanding static economy?
Granted that invention and innovation are always occurring to necessitate saving or borrowing for expansionary investment; still, there may be times when investment opportunities are scant and excessive investment is a distinct and menacing possibility. This excess would generate excess capacity, idle machinery, layoffs and human misery. ( The nightmare of unemployment”) We’ve seen it before! When an expansionary investment in new and better capital goods is largely completed, it is time to implement a consumables expansion (the “basic expansion”) in order to exploit the greater productive potential by increasing the incomes of those with the greatest propensity to consume, i.e. the lower-income strata who will spend every additional dollar of income on the greater abundance to achieve a higher standard of living. And, in this basic expansion, full employment would be bolstered by higher incomes effecting the full use of the nation’s expanded productive capacity. One cannot always say that more aggregate saving in order to invest is always the appropriate course. Sometimes what is appropriate is less saving and more consuming in order to utilize all now-installed capacity and achieve full employment.
Note that the appropriateness of shifting distribution of incomes for either greater investment or for greater consumption, as the case may be, and for full employment is not based upon an encyclical or a Church social policy; the precepts are grounded in, and yielded by, the immanent intelligibility of the objective, purely-dynamic, economic process.
As Rubin points out, simple-minded dislike of the rich might make sense in a zero-sum world where one can become rich only by exploiting others, but not in a society full of creativity and useful inventions. Changing tax laws to soak the rich might make sense with a labor theory of value – which has been debunked -, but not with a sophisticated understanding of the scientific dynamics of continual investment and technological change. Also, the possibility and actuality of wise philanthropy which achieves a common good and improves society must be taken into account.
Finally, to promote a good culture and to manage this society properly, we need Cincinnatuses (not Cincinnati) who possess brains, backbones, and a knowledge of both macroeconomic dynamics and human history.
Evidently, then, suitable migrations are a means of providing adjustments in the community’s rate of saving. To increase the rate of saving (for expansionary investment), increase the income of the rich. … to decrease the rate of saving (to expand consumption and fully utilize new capital), increase the income of the poor. … The foregoing is the fundamental mode of adjusting the rate of saving to the phases of the productive cycle. It reveals that the surplus expansion is anti-egalitarian, inasmuch as that expansion postulates that increments in income go to high incomes. But it also reveals the basic expansion to be egalitarian, for that expansion postulates that increments go to low incomes [CWL 15, 135-37]
Now it is true that our culture cannot be accused of mistaken ideas on pure surplus income as it has been defined in this essay; for on that precise topic it has no ideas whatever. … there exists, in the mentality of our culture, no ideas, and in the procedures of our economies, no mechanisms, whatever directed to smoothly and equitably bringing about the reversal of net aggregate savings to zero as the basic expansion proceeds. (CWL 15, 153)
Ftnt.: Paul H. Rubin is an emeritus professor of economics at Emory University.